Novell rejects Elliot takeover bid as 'inadequate'

But company says it's committed to enhancing value for stockholders and will explore options including a stock repurchase, joint ventures, and a sale.

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Novell has rejected an unsolicited $2 billion takeover bid from Elliot Associates, the business software provider announced in a statement Saturday.

"Our board of directors has concluded, after careful consideration, including a review of the proposal with its independent financial and legal advisers, that Elliott's proposal is inadequate and that it undervalues the company's franchise and growth prospects," Novell said.

In a March 2 letter to Novell's board of directors, Elliot--a New York-based hedge fund that already holds an 8.5 percent stake in Novell--offered to acquire the company for $5.75 per share in cash. That price was 21 percent higher than Novell's closing stock price the day the offer was made.

In its letter to Novell shareholders, Elliott argued that Novell needs a lifeline because the "company's effort to shift away from its legacy division through acquisitions and new strategies has largely failed." Translation by CNET blogger Matt Asay: Novell has struggled to meaningfully use its growing Linux business to prop up its declining legacy businesses.

The fund's offer sent Novell's stock up 28 percent as investors hoped for a better bid.

In its statement Saturday, Novell said its board is committed to enhancing value for Novell stockholders and will explore alternatives including a return of capital to stockholders through a stock repurchase or cash dividend, strategic partnerships and alliances, joint ventures, and a sale of the company. The company added, however, that a future agreement or transaction cannot be assured.

Novell shares closed at $5.64 on Friday.